The IUP Journal of Applied Finance
Improved Capital Asset Pricing Model: A Multi-Objective Approach to Maximizing Capital Utility in Egypt

Article Details
Pub. Date : April, 2020
Product Name : The IUP Journal of Applied Finance
Product Type : Article
Product Code : IJAF10420
Author Name : Hanan Ibrahim Elnaggar, Ramadan A ZeinEldin
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 17

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Abstract

This paper proposes a new approach to allocating financial resources in the context of Egyptian culture. It uses an Improved Capital Asset Pricing Model (ICAPM) to maximize the utility of capital and investors' remunerations, given the dual goal of society benefits (economic and social) by means of cost of capital and profits. A multi-objective optimization technique is developed with two target models, based on the relationship between independent factors, which are the three categories of investments that satisfy society demands: subsistence, comfort and luxuries; and the dependent factors which are cost of capital as production return and the expected profit as a return for investment risk. In this paper, the ICAPM is formulated and solved as a multi-objective model. The proposed model is applied on real data estimated from Central Bank of Egypt (CBE) Annual Report 2017-2018, and Egypt Exchange 30 (EGX 30) Historical Data (January 2017-December 2017). The results show the best allocation for the three available alternatives with the lowest cost of capital and the highest total return.


Description

The fundamental characteristics of conventional money power are: being a medium of demand for goods and services, capable of being saved or hoarded, and the advantage of superior liquidity to goods and services (Onken, 2000). Business demands money as capital for investment and must pay the productivity Cost of Capital (COC) or the Marginal Efficiency of Capital (MEC).


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